07 July 2016 by lberuti

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Following last week price action which left quite a few people scratching their head with regards to the strength of credit, things are gradually coming back into place, and it is possible to make sense out of the recent price action. iTraxx Main (ITXEB) is still anchored towards the bottom of its range, which is consistent with the ECB buying European credit “en masse”. iTraxx Crossover is drifting wider steadily and decompressing compared with ITXEB, which is consistent with a smaller inclusion in the CSPP and a bigger sensitivity to UK names (they are the widest constituents by a fair margin). iTraxx Financials Senior (ITXES) is back to its widest levels compared with ITXEB (the spread between the two indices stand at 36bps when it was down to 23bps last week), which is consistent with UK institutions under pressure after the Brexit and its disastrous impact on real estate funds, with the Italian banks at recent wides following the woes of MONTE ( Banca Monte dei Paschi ), and with DB ( Deutsche Bank AG ) recent struggles. iTraxx Financials Subordinated is underperforming ITXES, as subordinated bond holders are first in line if bail in clauses were triggered among the weakest banks.